Mitchells & Butlers, the pub group which lost its chairman and chief executive earlier this year, has dropped its auditors Ernst & Young in a move which will be closely watched by the company's small shareholders.

In its resignation letter, which the accounting firm was legally required to file with Companies House, E&Y said: "The [M&B] directors decided to retender the audit and have chosen to appoint Deloitte as the company's new auditors. Ernst & Young decided not to participate in this process as we believed it unlikely that we would be successful."

M&B wrote to all shareholders on Wednesday relaying E&Y's resignation statement.

Corporate governance concerns have dogged M&B ever since the board, led by former chairman Simon Laffin, 18 months ago ousted four directors, accusing them of working with a handful of the group's largest shareholders in an attempt to gain control of the company. The accused shareholders, led by currency trader Joe Lewis, who holds 22%, then forced Laffin out and installed their own nominees and representatives — despite resistance from many institutional shareholders. A Takeover Panel inquiry found Lewis and others had not breached its rules.

In January this year Laffin's successor John Lovering quit, followed two months later by chief executive Adam Fowle, reawakening concerns about the independence of the board.

The departure of E&Y will not upset all corporate governance campaigners, as the firm earned £700,000 in non-audit fees last year — work that lobby group Pirc said created a potential conflict of interest.

However, in late 2009, Lewis's representatives on the board had been very unhappy with certain independent property valuations which had been signed off by E&Y. This was one of the flashpoints that let to the original dispute between Laffin and Lewis.